Potential Duplex Investment

[Gary F.]

I'll be the first to admit, I'm a total newbie at REI. I've been trying to educate myself as much as possible reading the many posts here on BP.

My situation:

I have a plenty of equity on my current home. I currently have a $250k HELOC at 4% fixed/5 yrs.

Potential property:

Asking price $250

Sacramento, CA. Low income area

Duplex, 7200sf lot. Two freestanding small houses on one long parcel.

Claimed rental history ~$2000/month:

Unit 1: $1300. 

4/2. 1300sf. Carport. Hardwood floors. W/D in unit.

Unit 2: $700

2/1. Carport

The selling agent says both units are currently rented with non-Section 8 but they have done Section 8 in the past. One long term renter (5 yrs) and one moving on next week.

He says current owner is an older investor. Online research shows the current owner may have paid approx. $120k for the property back in 2011. He would do quite well if he gets his $250k asking price. CA is hot right now, so they could potentially get more than asking also giving this property's unique 2 separate houses setup vs. a shared wall. Of course, I've no idea if we're in a bubble and the market will go down in the coming months/years. On the downside, it's in Sacramento in a less than stellar neighborhood. Almost a "ghetto" maybe.

I could potentially pay full cash asking price if property was really worth the price.  But even the selling agent advised against that stating it's better to put down 25% and mortgage the balance. I'm still not fully understanding the advantage of that since I'd still have to pay that loan as well.

Please share thoughts....Thanks.